24/7 Wall St.

Shell Invests Further in Cellulosic Ethanol (RDS-A) (RDS-B)

Royal Dutch Shell plc (NYSE: RDS-B) and Iogen Corporation announced Tuesday an extended commercial alliance that will accelerate their development and deployment of cellulosic ethanol.

This includes a significant investment by Shell in technology development with Iogen Energy Corporation, a jointly owned development company dedicated to the advancement of cellulosic ethanol. This new arrangement will also see Shell increasing its stake in Iogen Energy Corporation from 26.3% to 50%.

Shell first took an equity stake in Iogen back in 2002.  Iogen’s first demonstration commercial plant opened in Ottawa in 2004.

Shell noted that this is a key part of Shell’s strategic program in biofuels, particularly in ‘next generation’ biofuels using non-food feedstocks.  The cellulosic ethanol fuel is made from raw materials such as wheat straw and is made to reduce CO2 emissions far lower than conventional gasoline.

As far as the terms of this investment, the figures were  not offered other than the stake in percentage terms.  Shell is also considering investing in a full-scale commercial cellulosic ethanol plant and is contributing to Iogen’s detailed feasibility and design assessment work. 

Jon C. Ogg
July 16, 2008

Merrill Lynch: Commodities May Have Peaked (MER)

If you have been worried about inflation and the price of things such as metals, energy, food, and more, Merrill Lynch (NYSE: MER) may have some hopes for you.  In fact, if you have been watching the oil ticker today you would certainly have noticed that oil's drop was at one point $9.00.

Merrill Lynch has said that the commodities cycle may have peaked in the first half of this year.  It noted that the S&P/GSCI commodity index was up roughly 41% during the first half of 2008, which is the largest gain since the index inception.

It isn't just about performance though.  Merrill Lynch noted the slowdown in global growth, weakening fundamentals, and challenging macroeconomic issues that should continue all being added weight to the sector.  Another issue would likely be some added slowing in emerging market growth in the coming years.
The firm has reiterated its "underweight" stance and said it would urge investors to reduce portfolio exposure to commodities.  We contacted Merrill Lynch for more details than we were able to get from clients but the firm doesn't want to release that full report to the public yet.

Here are some other supporting data from recent days, some of which is actually refuting but that is what makes a ball game:

• A gold company buys an oil company to hedge energy costs
• Oil prices may lead to recession
• Ken Heebner sticks with Petrobras.
• T. Boone Pickens takes his energy plan on the road
• Refiners can't pass on enough costs

Jon C. Ogg
July 15, 2008

Barrick Gold's Energy Hedge: Buy an Oil Company (ABX)

With energy prices on a seemingly never-ending upward trend, it makes sense to hedge against future price increases in any available manner. Barrick Gold Corp. (NYSE:ABX) proposed to do just that by offering C$6.00/share for small Canadian oil firm Cadence Energy (TSX:CDS). Cadence currently produces about 3,600 boe/day, and it's proved reserves are estimated to be 18.2 million boe, or about 13.8 years worth at current production rates. The offer is worth C$354 million to Cadence shareholders.

Barrick's offer hedges about a quarter of the company's oil consumption and "a significant portion" of its natural gas consumption. Barrick's CFO estimated the acquisition cost at approximately $20/boe.

This is a clever move on Barrick's part. It hedges the company's energy costs at a lower rate than the forward market pricing, and the company estimates that it breaks even on cash flow even in the event that oil prices drop to less than half the current market price.

The offer is open for 35 days, and requires both regulatory approval and acceptance by two-thirds of Cadence's stockholders. Cadence stock closed at $6.16 on the Toronto exchange yesterday, and Barrick shares gained more than a buck yesterday, up more than $6.00 in the past 5 trading days.

With Barrick having a $45 Billion market cap, this is a small drop in the bucket for the company.  Maybe the airlines, truckers, and other transportation companies should band together and make an oil purchase of their own.

Paul Ausick
July 15, 2008

The Price Of Oil: A Strike In Brazil

Workers for Petrobas, the largest oil company in Brazil, are going on strike. According to Bloomberg, the action may cut Brazilian daily oil output by more than half. In a world where even the rumor of interrupted supply can send crude up by several dollars, the news is certainly not welcome.

The labor issue adds a new wrinkle to the dynamics of oil pricing. Already in the mix are speculation, the value of the American dollar, OPEC decisions on supply, consumption increases in China and India, and political problems in Nigeria and Iran.

Among all of the problems facing oil prices over the long-term, labor could end up being the most severe. Workers see oil companies and their owners getting fabulously rich. Little if any of that is passed on to the day laborer. In countries where personal income is extremely modest, the spread between worker and owner is likely to get larger. Labor understand the economic value of shipping crude every say and the potential harm that an interruption does to a company which counts on the even flow exports of oil for its profits.

Several exporters could run into a problem not unlike the one faced by Brazil. Nigeria, Mexico, Venezuela, and Russia are probably near the top of that list. Some of the countries in the Middle East might be added. Being poor and working for a rich company is the same everywhere.

Labor movements have learned a great deal over the last century. There is nothing like a strike to get management's attention. In the case of oil companies the repercussions are unusually broad.

Douglas A. McIntyre

Oil Hits Record At $146, Chances Of Deep Recession Grow

The price of oil hit $146 today on fears of instability in Iran, Nigeria, and production problems in Brazil.

If oil stays at this level, the price of gas is likely to move closer to $5.

With the auto and airline industries already in deep financial trouble, oil at $150 could push several of the companies in these sectors into Chapter 11.

With the consumer, gas and oil are likely to become a quarter to a third of the household expenses for some middle class families. With that added to higher food prices, Wal-Mart (WMT) may benefit, but no one else will.

The US middle class is running out of money.

Douglas A. McIntyre

Marathon Shows Refining is Still Reeling (MRO, TSO, VLO)

Marathon Oil (NYSE:MRO) stock is indicated lower this morning in pre-open trading following release of the company's interim update for the second quarter.  Shares of Tesoro Corp. (NYSE: TSO) and Valero Corp. (NYSE: VLO) have been under pressure on an almost daily basis that would currently give you the feeling that energy prices this high are impossible for these players whether they rise or fall.

Marathon's production is expected to reach 372,000 boe/d, slightly above previous guidance, but slightly below the year ago production of 375,000 boe/d. Estimates for sold barrels is off by 22,000 boe/day. Production is expected to be 20% below earlier guidance in Marathon's oil sands operations, but climbing prices for bitumen cover that up pretty well.Price realizations for oil and natural gas are up, but the company expects a $250 million after-tax write-down on its derivative hedges for synthetic oil sales.

But refining margins are the really bad news. Marathon expects second quarter refined products sales to be lower than last year by about 4%. Gross margins drop nearly 80% y-o-y, from $0.3925 in 2007 to $0.0850 this year. Derivative instrument losses on refined products adds another $190 million worth of bad news.

Then there's Tesoro Corp. (NYSE:TSO), which hit a 52-week low yesterday. Tesoro issued second quarter guidance in June, aiming for a 10% reduction in their inventory by the end of the second quarter. The company hopes to reduce demands for working capital by reducing inventory. Hedges will cost the company $125 million in the quarter, and higher than expected energy costs will increase expenses by $0.30-$0.50/b. The news from Marathon didn't help Tesoro, although its stock is up marginally after a nightmare Wednesday.

Finally, there's Valero Corp. (NYSE:VLO). Yesterday the company announced a quarterly cash dividend of $0.15 per share. This morning, the stock is trading down again at levels challenging its 52-week low. Valero has not issued an interim update on its operations yet, but don't expect any good news if and when it does.

As bad as things were for refiners last quarter, they're only going to get worse this quarter. Watch EIA crude and refined products inventory reports. Commercial crude inventories are below the lower boundary of the average range for this time of year. Inventory management is the single best weapon refiners have for managing operational costs and cash flow. There aren't many other arrows in their quivers.

Paul Ausick
July 10, 2008

Basic Energy Reports on June Operations; Gets Flak/Props on Grey Wolf Merger (BAS, GW, PDS, RMG)

Oilfield services company Basic Energy Services (NYSE:BAS) released its June operations report this morning. The company has increased its rig count by one over May, and thirty since a year ago. Rig utilization stands at 79%, and drilling utilization is down a few points from May, but up from 63% to 83% over June 2007. These are solid numbers, and the company's president and CEO expects improvements in pricing to offset higher fuel and labor costs.

The interesting news is behind the numbers (as usual). In April, Basic announced a "merger of equals" with Grey Wolf (NYSE:GW), a well driller. The surviving entity will retain the Grey Wolf name and NYSE ticker. Grey Wolf shareholders will receive $1.82 in cash plus one share of stock in the new company in exchange for four shares of existing Grey Wolf stock. Basic stockholders receive $6.70 in cash and 0.91975 shares of stock in the new company for each share of Basic stock. Then, in early June, Canada's Precision Drilling Trust (NYSE:PDS) made an unsolicited offer of $9.00/share in cash and stock for Grey Wolf. Precision has bumped its offer twice, and it now stands at $10.00/share. Precision, like Grey Wolf, is a drilling company, and the conventional wisdom seems to be that the deal between Precision and Grey Wolf makes more sense than the Grey Wolf/Basic deal because there is little chance for cost-cutting in the Basic merger.

On Monday, RiskMetrics (NYSE:RMG) weighed in with a report questioning the Basic/Grey Wolf merger, and raising questions of conflict of interest on Grey Wolf's Board. Yesterday, Egan-Jones Proxy Services recommended that Grey Wolf stockholders approve the Basic merger at the special meeting called for July 15th. Grey Wolf issued a press release citing Egan-Jones' recommendation.

The combination of Precision Drilling and Grey Wolf yields a larger drilling company, but it's hard to see how there will be significant cost savings. The Basic/Grey Wolf merger gives Grey Wolf some additional drilling capability, plus services such as completion, workovers, and abandonment. Strategically, the latter deal seems to position the merged company better, but it won't pay off in a quarter or two. To some shareholders, that quick payoff trumps everything else.   

Paul Ausick
July 9, 2008

Did Ken Heebner Go Mega-Bullish? (PBR, SLB)

Today we got to see Ken Heebner of CGM Funds for a quick interview on CNBC.  For those of you who follow Mr. Heebner, you already know that he is deemed by most as a far better trend spotter and far more nimble than Warren Buffett.

He recently came out with a strong defense of Petrobras or Petroleo Brasileiro (NYSE: PBR).  This morning he kept his bullish stance on the stock with 14 Billion barrels of oil in proven reserves, although he did note some political developments that could ultimately mean less profits for drilling in an area (which he doesn't seem to believe will be the case).

Another name Heeber came out positively on this morning was Schlumberger (NYSE: SLB).  He believes this is the winner in exploration and services and is cheap at 17-times forward earnings because he thinks we'll see accelerated earnings growth because of higher prices later in 2008. 

On a broader basis, it really seems like Heebner is turning mega-bullish.  It isn't that he made any major predictions, but he noted how certain oversold and sentiment readings are at levels not seen since 1974 and not since right before the Iraq war.  He also noted how there is a record number of shorts (short selling) and things just aren't as bad as they think.  In fact, Heebner said he thinks the economy will look significantly better a year from now and the market is supposed to discount up to a year out.

On overall commodities, he's still bullish but didn't give any names.  He said the global growth story is still there and commodity prices might be a problem in the future.  Unfortunately, we got no word on whether or not he thinks the pullback specific to agriculture stocks is an opportunity or not.

He isn't immune from making wrong decisions if you look at his call on Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) where he called a bottom very prematurely in August 2007.

Jon C. Ogg
July 9, 2008

T. Boone Pickens Takes New Energy Plan On The Road

Oil Baron T. Boone Pickens has been on CNBC this morning touting his new energy plan.  While his plan does call on several domestic solutions to lower our $700 Billion deficit we are sending out for buying foreign oil.  So far he thinks that demand destruction has only killed 1 million barrels per day.

Of course his Clean Energy (NASDAQ: CLNE) is a solution to use natural gas to be converted to fuel for autos. He noted that most cars could be retrofitted to run on LNG for roughly $2,000.00.  Other stocks he's mentioned he likes before today in oil & gas were EP, SD, XCO.

His biggest plan calls for much more added wind farm capabilities than anything, and this is where the media is focusing much of its efforts on the Pickens plan today.

He is also calling for more nuclear power plants, although he does note that the solution to build many new plants on a cost effective basis doesn't get us all the way there on its own.  USEC Inc. (USU) is the U.S. play there.

Others mentioned were hydro and solar, and he's still pro-ethanol because it is at least a domestic solution.  Ethanol stocks: AVR, VSE, PEIX.

This can take out 38% of the oil imported in the U.S. over a ten year period.

Pickens has also said he'd like to have a 3-way meeting with McCain and Obama.

Here were his comments calling for $150 oil before today.

You can see the full plan at PickensPlan.org.

Jon C. Ogg
July 8, 2008

Goodrich Petroleum Taps Capital Markets (GDP)

Goodrich Petroleum Corporation (NYSE: GDP) has announced that it has commenced an underwritten public secondary offering of 3 million shares of its common stock.    J.P. Morgan Securities Inc. is acting as sole book-running manager for the common stock offering and it has an over-allotment option of some 450,000 shares.

The oil & gas company noted that it intends to use a portion of the proceeds from this offering to pay down the balance of its senior revolving credit facility.  The rest of the net funds raised are earmarked for general corporate purposes. Goodrich has also noted that such paid down funds under the senior revolving credit facility may be re-borrowed from time to time for general corporate purposes.

Based upon a 3% drop to $70.74, Goodrich Petroleum has a market cap of some $2.36 Billion.  This would raise an additional $210+ million on a gross basis if it closes today.  Its 52-week trading range is $16.63 to $86.18.

Jon C. Ogg
July 7, 2008

Dune Energy: Shrinking to Grow (DNE)

Dune Energy, Inc. (Amex: DNE) is selling off its Barnett Shale assets located in Denton and Wise Counties, Texas, for $41.5 million.  The effective date of the sale will be May 1, 2008, with closing expected to occur on or before July 31, 2008.  Dune's Barnett Shale at 12/31/2008 had proved developed reserves of 19.3 Bcfe in 35 producing wells, plus 6 wells with behind pipe pay awaiting fracture stimulation.  An additional 13 proved developed locations contained an estimated 14.1 Bcfe of net reserves.  This sale area covers about 19% of Dune's total proved reserves, but only about 6.8% of Dune's year end 2007 SEC Present Value discounted at 10%. 

The company noted that the first quarter 2008 revenue attributable to Dune's Barnett Shale operations totaled $7.64 per Mcfe, while expenses were $4.36 per Mcfe.  Dune's Gulf Coast operations yielded revenue of $12.14 per Mcfe, while costs totaled $4.14 per Mcfe.  Its operating profit for the Barnett Shale and Gulf Coast were $3.28 and $8.00 per Mcfe, respectively.

Proceeds from the sale will be utilized to eliminate outstanding borrowings under its credit revolver and for general working capital.  The Company will continue its active exploitation program in its Gulf Coast fields during 2008 and the company expects to replace the production lost stemming from the sale of its Barnett Shale assets, with fourth quarter volumes expected to exceed current levels.

More interesting than the sale itself is the relative value this is compared to the overall size of the company.  The company has a market cap of around $78 million.  With shares up 2% at $0.98, this is still at the bottom of the last 52-week trading range of $0.94 to $2.45.

Dune is shrinking its existing operations no matter how you cut it, even if it is short-lived.  But it will now get to focus on growing its higher margin operations and will get to clean up its balance sheet.  There have been some recent changes made to its convertible debt structure, so some of these numbers on a fully diluted basis may be different than they appear on a remedial look. At the end of last quarter, cash was a mere $14.59 million, while it carried $303 million in long-term debt and $441 million in total liabilities.

Jon C. Ogg
July 7, 2008

Oil At $200 And A Two-Year Recession

The predictions of $200 oil have made it to the front page of The Wall Street Journal. They have been hanging around in less prominent places, but now they gain some further legitimacy. According to the paper, "Oil's historic ascent from $100 to nearly $150 a barrel in just six months is lending weight to a far grimmer prediction: Crude could reach $200 a barrel by the end of the year." The Journal predicts this would push gas prices to $6 a gallon.

If gas goes that high, several industries will be toast. Airlines and auto companies are obvious. The bankruptcy courts will be filled to overflowing with their lawyers and creditors' counsels. The result could be one of the largest restructuring in the recent history of the US economy. Where the capital will come from to do this is anyone's guess.

The falling of the dominoes does not end there. Gas and oil prices at unprecedented levels may well push energy costs to 20% to 25% of the income of many middle class households. In regions where the weather gets particularly cold in the Winter, that number could go even higher. Consumer spending would be completely arrested. Retail sales would be damaged beyond all but the most negative predictions.

Any industry which relies on transportation, whether it is newspapers or forestry products, would face costs which could easily wipe out gross margins. The impact could be so profound that it could effect the way that some people get most of their daily news.

Oil at $200 would seize up the economy to the extent that virtually no industry would me immune. Fixing the problem could take a year, and, perhaps, much longer. The US has not seen anything like it and has no experience with remedies, which makes solving the trouble all the harder.

Douglas A. McIntyre

OPEC: India And China Will Keep Oil High

OPEC would still like its critics to believe that the level of its supply of oil to the world has nothing to do with crude prices. OPEC President Chakib Khelil still blames the dollar and speculation in the futures market.

According to Reuters, Kheilil also believes that "expectations that global oil supplies will not cope in the long term with strong demand growth from newly industrializing China and India" will keep prices moving higher.

It does not look like OPEC wants to involve itself in an experiment to see whether supply matters.

Douglas A. McIntyre

How To Solve The Gas Price Crisis

The solution to gas prices is almost right under the noses of those looking for solutions. A fourteen hour plane ride to India or China will do it.

The retail price of gas in China is about $2.60. In a month or two, the price of a gallon in the US could be twice that.

The reason for low gas prices in China is simple. The government takes care of it by giving financial aid to oil companies in the country. They buy crude at $130 a barrel and sell the by-products well below the rate at which they can make a profit. The national treasury underwrites the rest.

In the United States, gas is taxed at both the federal and state level. A big part of the $4 a gallon goes into the pockets of the government. That is not a bad idea. The cash probably does a lot of good for a lot of people. It also lets some state senators buy a new Cadillac every year. Dishonestly is always part of the system.

The American government has an extremely difficult choice now. It can let the economy run into a deep and prolonged recession, one driven to a very large extent by rising commodities prices, or it can make an investment that may run into the hundreds of billions of dollars to cut gas, diesel, and heating oil prices. This cannot be done thought tax credits. It would take too long. The help has to go directly to refiners so that prices can be cut immediately and across the board.

Congress and state officials have to ask what it will cost them if their tax bases are riven by job losses, lower property values, and business failures.

Billionaire Eli Broad recently said the economy is the worst it has been since WW II. That may be true. The price of oil is above $140, and the head of OPEC says to look for that to move to $170.

In the US, the devastation has already begun.

The government has to ask itself a simple question. Why does China write a check to keep energy costs low? And, why is its GDP rising at 9%. They are related. Bring down the price of gas is a form of socialism, but so is Social Security.

Douglas A. McIntyre

The Latest, And Perhaps Best, Case For $200 Oil

With the price of oil moving up so sharply, the demand should go down. Those dynamics are immutable.

The International Energy Agency, the big think tank in the industry, says demand will keep going up because of the expanding need for crude in Asia, Latin America, and the Middle East. According to The New York Times, "By 2013, oil demand in developing countries will account for nearly 49 percent of total global demand, the report said, compared with 36 percent as recently as 1996. "

That puts the US, Japan, and Europe in Hades for the foreseeable future. Even if these regions use less fuel, prices will continue to rise.

The information from the agency drives home the point that the most critical dynamics of rising oil prices will not change. Countries like China will continue to underwrite the price of gas and diesel to keep their economies moving. They cannot afford to see the transportation of manufactured goods and commodities dented. Even though the central government has raised the price of fuel, it still writes most of the check for a tank of petrol.

Perhaps worse, the rising price of crude lets oil-rich countries keep more of the stuff at home. Saudi Arabia could cut oil exports by half and still bring in the total number of dollars it did a year ago. The kingdom and its neighbors, along with Venezuela, Brazil, and Mexico, are using more and more oil to power vehicles for their citizens. Additional oil is also needed in these countries as they build their own infrastructures.

Oil prices may make modest moves up and down, but the trend is ugly and the solutions few.

Douglas A. McIntyre

What Happens To Oil Prices When Refiners Stop Producing? (VLO, WNR, TSO)

As we've pointed out earlier, oil refining is not the business to be in these days. Refiners have been hit hard by skyrocketing crude oil prices because they are unable to pass along those price increases to consumers. Because they generally have no E&P division, they are forced to purchase crude at the ever-increasing spot price, whereas integrated oil companies can take advantage of long-term supply contracts from their E&P divisions to help moderate the price that their refining and marketing divisions have to pay.

How bad are things? Today, Western Refining (NYSE:WNR) announced that it had abandoned all covenants on its credit facilities for the quarter just ended. The covenants will be reinstated at the end of the third quarter, with no change to the amounts available under the credit facilities. However, Western has agreed to eliminate quarterly dividends on common stock through the end of 2009, and has added a new revolving credit facility for $75 million to the $800 million in revolving credit that it already has. In early trading, the stock is down about $0.25, more than 80% off its 52-week high.

The story is unfortunately no better for Valero (NYSE:VLO) or Tesoro (NYSE:TSO). Tesoro is off about $0.45, just a buck above its 52-week low, and down about 70% from its 52-week high. Valero is off $0.78 for the day, off almost 50% from its 52-week high and near its 52-week low set in May.

Occidental To Try Enhanced Oil Recovery in Permian Basin (OXY, KMP)

Occidental Petroleum (NYSE:OXY) plans to spend $1.1 Billion on a natural gas processing plant and related pipelines. The company expects the enhanced oil recovery (EOR) program to increase it's Permian Basin production by a "minimum" of 50,000 b/d within five years. The project ups Oxy's developed reserves in the Permian Basin from 1.2 barrels of oil equivalent (boe) to approximately 1.7 billion boe. A very nice jump indeed.

The new processing plant will produce about 500 million cubic feet of CO2 per day, and a new pipeline will connect the plant to the Denver City, Texas, CO2 hub. That's important, because it gives Occidental access to additional commercial supplies of CO2 if needed.

Occidental is not the only company pushing EOR in the Permian Basin. Kinder Morgan Energy Partners (NYSE:KMP) has for several years been transporting CO2 to properties it owns or operates in the Permian from its McElmo and Bravo Dome CO2 projects, which straddle the Colorado-New Mexico border. In 2007, Kinder Morgan produced almost 55,000 b/d from its Permian Basin properties, and pumped more than 600 billion cf of CO2 into the region. The company is expanding its CO2 operations, and expects to produce another 200 million cf/d. This is about five times the amount of CO2 that Oxy plans to produce.

However, Occidental's reserves in the Permian Basin are much larger than Kinder Morgan's, and the investment that Oxy is making now will reduce its per barrel production costs to levels similar to Kinder Morgan's -- $16.22/boe in 2007. That makes for very handsome profit margins with crude over $130.00 per barrel.

Paul Ausick
July 1, 2008

Upgrades & Downgrades in Oil & Gas (BHI, SII, HAL, NOV, SLB, WFT, BJS, SE, TTES, NBF)

These are some of the top analyst calls in oil and gas stocks we have seen in the early hours of trading this Tuesday morning.

Citigroup picked up new coverage on many stocks today.  Its new HOLD rated positions are as follows: Baker Hughes (NYSE: BHI) and Smith Intl (NYSE: SII).  Its new BUY rated stocks are as follows:  Halliburton (NYSE: HAL), National Oilwell Varco (NYSE: NOV), and Schlumberger (NYSE: SLB).  Citi also made two downgrades as both Weatherford (NYSE: WFT) and BJ Services (NYSE: BJS) were downgrades to HOLD from BUY ratings.

UBS has also made a select call on Spectra Energy (NYSE: SE) as it was started as a BUY rating.

Jefferies started coverage on T-3 Energy Services Inc. (NASDAQ: TTES) as a BUY rated stock. Jefferies also downgraded Nova Biosource Fuels (AMEX: NBF) to HOLD from BUY.

Jon C. Ogg
July 1, 2008

Oilsands Quest: Speculation vs. Value (BQI)

Hi commodity prices beget high stock prices of companies that deal in those commodities.  At least speculation isn't at play in the markets, after all the speculators even say they aren't responsible.  This notion is arguable either way on too many fronts too poke holes in, but what is for sure is that speculators are hanging out in many smaller oil and gas stocks that they think will have a shot at becoming the next giant.

Oilsands Quest Inc. (AMEX: BQI) is one such company where speculation has led to greater and interest.  Remember that speculation itself isn't bad, and in fact leads to a more efficient and liquid market.  This company recently raised about $50 million in a private placement.  It has also started the initial drilling of two projects in Northern Saskatchewan in Canada and has bought rights to more nearby properties; Alberta is also listed by the company.  It has also been adding in its top talent to bolster its management and operations.  As of the last data, we have a market cap right under $1.4 Billion, although the recent securities sale may not be included in that.

But there is still so far almost an entirely unknown bet that has yet to be quantified.  Oilsands Quest and its engineering consultants have embarked upon preliminary engineering of the first 30,000 barrels per day commercial project planned for the development of Axe Lake in the specific area where the first series of reservoir tests are being conducted.  If you look at the company's last internal update it outlines the current plans and shows some preliminary estimates on roll-out dates.

We won't really go out beyond what the company itself has not been able t.  The opportunity is huge.  Living up to it will be something that takes time.  This stock closed up over 9% on Monday at $6.50 and the yearly range is $2.49 to $6.95. 

Jon C. Ogg
July 1, 2008

Some Good News for Cheniere Energy, Finally (LNG, CQP, JPM)

For the past two months, all the news from Cheniere Energy (AMEX:LNG) has been bad. First, there was the triple whammy. Then there was an awful earnings report for Cheniere and its spin-off, Cheniere Energy Partners (AMEX:CQP). Last, the company's stock hit a 52-week low on May 9th, and has dropped as low as $3.65/share since then.

Cheniere shares hit a high of $5.05 today on the company's announcement that it has reached a marketing agreement for its re-gasified LNG at the Sabine Pass terminal. Cheniere Partners reached $9.42 earlier today, before backing off to $9.12 currently. A subsidiary of J.P. Morgan (NYSE:JPM), J.P. Morgan Ventures Energy Corporation, will purchase LNG cargoes from Cheniere as soon as the LNG gets to Sabine Pass. In return, the JPM energy group acquires some storage and re-gasification capacity from Cheniere. The mother ship, JPM, guarantees all the energy group's financial obligations.

This is the first good news the Cheniere companies have had in some time. It does reduce their earnings potential, but the companies were so short of cash that their ability to pay for LNG cargoes was questionable. Now, however, the deal with Morgan frees Cheniere from life support. The agreement probably won't have any impact in the second quarter, where analysts are estimating Cheniere's loss at $1.12/share. But estimated third quarter losses of $1.29/share will almost certainly be revised downward.

Paul Ausick
June 27, 2008

Oil At $140, One Share Of Exxon (XOM) Buys A Tank Of Gas

Every time the market thinks oil won't go higher, it does. Today it hit $140. To be fair, OPEC president Chakib Khelil said oil could reach $150 to $170 this summer. At the current rate of increase, crude may make those numbers before the 4th of July.

Premium gas is already above $5 in some regions in the US. Regular is over $4.25 many places. Refineries and retailers can only swallow so much in terms of losses. The consumer will have sit at the same table with them soon.

A 1% increase in crude does not represent a 1% increase in gas. Too bad the math is not that simple. Drivers could look ahead a month or two and see what it will cost to fill up at the pump.

Gas will hit $5 throughout much of the US, probably in July. Too much of the auto travel by Americans is mandatory. And, even if it hurts, some people will insist on vacationing by car this summer.

At $87, it now takes one share of Exxon (XOM) to pay for a fill-up.

Ken Heebner Keeps Up On Petrobras (PBR)

The esteemed Ken Heebner of CGM Funds came on CNBC after the coin toss announcement from the FOMC today and he has defended and reiterated his strong and solid views on Petroleo Brasileiro (NYSE: PBR), or Petrobras. 

This is a stock he has been behind for quite some time as of now, but he thinks it is headed much higher.  He believes that the new huge find they are sitting on could lead this one to grow 5 to 10 times over the first half of the next decade.  He noted how it is trading at 9-times forward earnings, with a huge discount to the S&P, and a solid value under the company.  He even gave it the equivalent of "I haven't seen anything like it (the discount)" in his interview.

Shares of PetroBras are up over 3% at $68.39 on the day and the 52-week trading range is $24.375 to $77.61.

As far as what we think of Ken Heebner, let's just say he is far more nimble and far more active than Warren Buffett as far as trading and investing are concerned.  Heebner's got a better record of late, too.

Jon C. Ogg
June 25, 2008

Blackstone Puts $500 Million Into Pipeline Company (BX, KYN, KYE, KED, EPD)

The Wall Street Journal has reported that The Blackstone Group LP (NYSE:BX) will invest some $500 million into a new pipeline company, Crestwood Midstream Partners LLC. Crestwood was formed in December 2007, with an initial investment of $150 million from the Kayne Anderson private equity energy funds, and you will see there are several of them:

• Kayne Anderson MLP Investment Company (NYSE: KYN)
• Kayne Anderson Energy Total Return Fund (NYSE: KYE)
• Kayne Anderson Energy Development Company (NYSE: KED)

A Blackstone-owned hedge fund, GSO Capital Partners, is also participating in today's deal.

Crestwood is headed by Robert G. Phillips, former chief executive of Enterprise Products Partners (NYSE:EPD), who joined Enterprise following its merger with GulfTerra in 2006. The WSJ notes that Blackstone teamed up with Warburg Pincus just a week ago on a $500 million investment in Kosmos Energy, an West African offshore oil exploration company.

Paul Ausick
June 25, 2008

Williams Companies Challenges Multi-Year Highs on Guidance (WMB)

Williams Companies, Inc. (NYSE: WMB) has just increased its earnings guidance for 2008 and 2009. 

Its 2008 consolidated recurring segment profit guidance to a range of $3.1 to $3.65 Billion and $2.30 to $2.80 EPS, up from its previous ranges of $2.5 to $3.0 Billion and $1.70 to $2.10.  First Call has 2008 estimates of $2.21 EPS.

For 2009, Williams its range to $2.9 to $3.8 Billion and earnings per share to a range of $2.05 to $2.90 EPS, up from its Prior ranges of $2.6 to $3.2 Billion and $1.80 to $2.30 EPS.  First Call has 2009 estimates at $2.48 EPS.

This data is being shown ahead of Williams' analyst day, and the company has also updated its hedging programs as well as its investment opportunities and future project opportunities.

Trading volume is still thin since we have almost 2 hours to the open, but shares are indicated north of $40.60 in early-bird trading after a $39.13 close yesterday.  The 52-week trading range has been $26.82 to $40.58.

Jon C. Ogg
June 25, 2008

Oil & Gas Top Analyst Calls (CPX, FSYS, KEG, PXD, STO)

These are some of the analyst calls impacting oil and gas related shares so far this morning from Wall Street research firms:

• Complete Production Services (NYSE: CPX) Raised To Overweight By JP Morgan; shares indicated up 0.5% on thin volume.
• Fuel Systems Solutions (NASDAQ: FSYS) Cut to Neutral from Buy at Broadpoint (alternative fuel for transportation and power generation); shares down 3.5% on downgrade.
• Key Energy Services (NYSE: KEG) Raised ot Outperform at RBC Capital; shares up over 3% so far.
• Pioneer Natural Resources (NYSE: PXD) Raised to Outperform at BMO Capital; shares up 1.8%.
• Statoil Hydro (NYSE: STO) Started as Overweight at Morgan Stanley; Cramer just panned this one as "running out of oil" last night on CNBC's MAD MONEY; shares up 1.3%.

Jon C. Ogg
June 24, 2008

Getting The Bad News Out Early In The Day: Recession And Oil

One of the head investment strategists at Merrill Lynch thinks the stock market is heading lower, perhaps much lower.

"The Standard & Poor's 500 Index has never reached a low within the first three months of a contraction, said Brian Belski, Merrill's U.S. sector strategist," according to Bloomberg. If the theory is right, the market may not bottom until the third or fourth quarter.

Not to seem to be piling on, oil rose to $136.56. The Saudi offer to increase output is being viewed as bogus because the amount is so small. And, Nigerian rebels are still using Shell installations in that country for target practice.

The second half of the day may be better.

Douglas A. McIntyre

Saudis To Increase Flow Of Oil

CNBC is reporting that The Saudis will increase oil production capacity gradually over the next year according to a senior advisor to the Minister of Petroleum at the Jeddah Energy Meeting in Saudi Arabia, Ibrahim Al-Muhanna.

The network also notes that The nation's current total capacity of 11.3 million barrels per day is expected to increase to 12.5 million barrels per day, Al-Muhanna said. That is much more than the Saudi's previously believed capacity of 10.8 million barrels per day.

Douglas A. McIntrye

Syntroleum & Tyson Get Tax-Free Bond Status for Dynamic Fuels Venture (SYNM, TSN)

Syntroleum Corporation (NASDAQ: SYNM) has announced that Dynamic Fuels LLC, a 50-50 joint venture between Syntroleum and Tyson Foods Inc. (NYSE: TSN), has received final approval from the Louisiana State Bond Commission for $100 million in tax exempt Gulf Opportunity Zone (GO Zone) Bonds. 

This will be used to fund the building of the venture's renewable synthetic fuels facility located in Geismar, Louisiana. This $100 million is the maximum amount that can be granted for a project under policy guidelines adopted by Louisiana's Bond Commission.  The companies are planning on initial production starting in early 2010.

Dynamic Fuels was set up to convert low-grade inedible fats and greases into renewable synthetic diesel, jet and military fuel.

If you are flying a plane in 2011 or beyond and you think you keep smelling fried chicken, you might be a Dynamic Fuels client.

Jon C. Ogg
June 20, 2008

Speculative Oil & Gas Moves (SD, PINN)

Over at "VOLUME SPIKE" (vsinvestor.com) we were running some screens today and found two unusual option and stock movers worth noting today.  These two moves come from companies as different from each other as night and day, so besides them being in the same sector they are completely unrelated movers.  This was one of the oil & gas companies recently highlighted by none other than T. Boone Pickens when he was touting $150/barrel oil.

The first came in SandRidge Energy Inc. (NYSE: SD) with a highly unusual options volume trade in the SEP08 $80.00 CALLS.  That is more than any normal day's implied volume by far if you look at the leverage of the contracts, and the stock has never traded at $80.00.  .

The second strange volume alert came in a much more speculative stock called Pinnacle Gas Resources, Inc. (NASDAQ: PINN).  It looks like traders are "speculating on speculators" as this was a thin volume stock that has been active the last two days.

Douglas A. McIntyre
June 19, 2008

Goldman Sachs Lifts Oil Services Sector (APC, APA, CVX, COP, DVN, EOG, HES, PBR, SU)

We already noted how Goldman Sachs Group (NYSE: GS) has raised its average oil prices for the years ahead, but the firm has also raised its OIL SERVICES Sector ratings this morning to "Attractive" from "Neutral."  Below are just some of the "BUY-Rated" stocks covered in this call with significant raised estimates:

• Anadarko Petroleum Corp. (NYSE: APC)
• Apache Corp. (NYSE: APA)
• Chevron Corp. (NYSE: CVX)
• ConocoPhillips (NYSE: COP)
• Devon Energy Corp. (NYSE: DVN)
• EOG Resources Inc. (NYSE: EOG)
• Hess Corp. (NYSE: HES)
• Petroleo Brasileiro S.A. (NYSE: PBR)
• Suncor Energy Inc. (NYSE: SU)

The firm believes that $100.00 oil is reality. and is raising price targets by 12% on average with new price targets to reflect the high-end of its trading ranges with what it now sees as a 20% average upside for the Goldman Sachs "Buy-rated" stocks.

The firm had been recommending a strategy of "buy on pullbacks" but it notes that the pullbacks have been shorter and smaller than expected.   The firm believes that the stocks could trade 5% to 10% lower in a correction scenario as of now, but also says it would view any weakness as temporary and would use it as a buying opportunity.

Jon C. Ogg
June 19, 2008

Goldman Sachs Lifts Oil Targets (GS)

Goldman Sachs Group (NYSE: GS) has raised its Brent Crude average oil prices for the years ahead.  The firm has increased its price forecasts to reflect a continued tightening of global crude oil supply and demand fundamentals.  Here are the new price targets:

• 2008 average raised to $117.40 from $108.00;
• 2009 to 2010 will average $140.00 (from $110.00) in 2009 and 2010 will be the peak at $150.00 average;
• 2011 average will slide back to an average of $140.00;
• 2012 average appears to be all the way down to $85.00 (from $75.00).

Jon C. Ogg
June 19, 2008

More Oil Woes In Nigeria

Shell has shut some of its oil production in Nigeria.

According to CNN Money "it shut down production from an offshore oil field that produces about 200,000 barrels per day after the most powerful militant group in Nigeria launched an attack on an installation."

Crude prices should be up again today.

Douglas A. McIntyre

The Hummer In Tiananmen Square: World Energy Crisis In A Tea Cup

SUV sales are at record levels in China. Driving one of the beasts is considered a status symbol, the way it used to be in the US. With gas at $4 a gallon, filling up a Lincoln Navigator can now cost a US citizen $100. He may need that money to buy the $80 box of Kellogg cornflakes.

According to the FT, "Although demand for SUVs is slumping in most parts of the world, it remains strong in China. Sales rose by 40 per cent in the first four months of the year."

Wealthy Chinese like to own the big trucks, but the wealthy can own them in China, the US, or Luxembourg. In the world's most populated country, it simply costs less to run a car than it does almost anywhere else.

No matter what China would like to say about cutting the support it gives its oil companies to take expensive crude and make it into cheap gas and diesel, the popularity of the SUV is part of a more telling set of facts. China cannot afford to cut off the life blood to its truckers and car buyers. They mean too much to national GDP growth. China cannot export what it cannot move from the central part of the country to its port cities.

As long as gas is inexpensive in China, crude prices can still rise. The country is large enough to move the market by itself. For the time being, it can take oil at very high prices. It is part of the cost of having a rapidly growing economy.

But, it leaves the rest of the energy consuming world out in the cold.

Douglas A. McIntyre

T. Boone Pickens Still High On Oil... As Are All Speculators

Everyone wants to know if speculators are driving up oil prices.  The answer from the speculators is "No, absolutely not! (wink, wink)" when they are asked.  The Senate Energy and Natural Resources Committee held testimony today with billionaire T. Boone Pickens.

Reuters has run a full excerpt of some of Pickens' comments.  Most interestingly, Pickens noted that the world production has topped out at 85 million barrels per day with the United States using some 21 million barrels, and total demand being 86.4 million barrels per day.  He also said that increased oversight of the oil markets from the Commodity Futures Trading Commission was a waste of time.  That is an interesting comment when you consider that the head of the CFTC just told lawmakers yesterday that speculators account for a growing share of trading in U.S. oil markets and make up about 70% of trading in the key U.S. oil futures contract. 

247WallSt.com watches its own oil mavericks, particularly Mr. Pickens.  But let's take this a bit further.  These same imbalances are the same numbers over the last year (except we thought Pickens used the 87 million barrels per day in global demand).  So it is the same exact forces at work that have been at work last year.  This is also much farther than oil  It is corn, it is coal, it is natural gas.

What price will price kill demand?  Pickens already said he believes you'll see $150 oil. That is likely a $4.40 average national average per gallon at the pump.  When SUV drivers or large sedan drivers are paying north of $100.00 to "fill 'er up" it should start to cut demand a bit.  Behavior is changing, but only gradually... and again, only a bit.  Your recycling efforts are only worth so much if you burn a gallon on the round trip to recycle.

Even in Houston where oil is king there is at least starting to be some modified behavior.  It is minimal but it is the comments about driving distances being too far and drivers being more efficient on their driving trips.  This change might only end up being housewives and soccer moms carpooling in from the burbs to go to Saks and Neiman Marcus, but it is a start. 

I was just on CNBC today covering the imbalance that the high energy prices are having on transportation stocks, particularly that of the airlines.  Our number one way to play high energy prices isn't trying to guess and hope which airline or trucker can hold out the longest.  We still prefer alternative energy as the sector to go to for this.  This is why three of our largest gainers in the "10 Stocks Under $10" newsletter have seen such large returns, with one being Capstone Turbine up some 200% from November.  Until that demand gets broken or until a replacement fuel is out there, it's the spot to be if oil goes to $150 or goes back to $100 per barrel.

Jon C. Ogg
June 17, 2008

Oil & Gas Hedges Galore (APL, TSO, PXP)

It looks like Joe Public isn't the only one who thought oil and gas prices were through the roof.  It seems that some of the big boys started locking-in prices that seemed extremely high.  This is called hedging or collaring, but we have seen fresh announcements from teh likes of Atlas Pipeline Partners LP (NYSE:APL), Tesoro (NYSE:TSO), and Plains Exploration and Production (NYSE:PXP).

Atlas Pipeline Partners LP (NYSE:APL) announced yesterday that it would discontinue its current hedging strategy in favor of returning to a strategy it had followed until June 2007. The company had hedged about 86% of its natural gas liquids production using crude oil derivative contracts. Because crude oil prices are skyrocketing, the hedges have become "less effective." The terminated contracts run through the next six quarters. Atlas raised its guidance from $1.90-$2.00 per common unit to $2.00-$2.20. That's the good news.

The not-so-good news is that Atlas will take a charge against earnings of about $10 million for the second quarter, with a total dollar loss on the derivative contracts of approximately $250 million. The stock price is up less than 0.1% in early trading.

Tesoro (NYSE:TSO), an independent refiner/marketer, has also closed its crude oil derivative positions and expects a charge against earnings this quarter of $125 million. The company also lowered guidance by $0.30-$0.50, blaming the change on high energy costs. The refining business is not getting any easier.

Finally today, Plains Exploration and Production (NYSE:PXP) announced that it had acquired crude oil puts on 40,000 b/d of production for 2009 and 2010. The average deferred premium plus interest on the 2009 contracts is $6.19 per barrel and the strike price is $106.16 per barrel. The 2010 contracts carry a strike price of $111.49 per barrel, and an averaged deferred premium plus interest of $12.08 per barrel. Plains also acquired $10-$20 collars on 150 million cubic feet of natural gas production for 2008 and 2009. The company plans to use marked-to-market accounting for these hedges.

There are a couple of morals to these stories. First, try not to be a refining/marketing company. That one's pretty obvious. Second, crude oil derivative contracts are not effective hedges in the current market. Their cost is too high and the continuously rising cost of crude almost guarantees that the hedge will be ineffective. Expect more of this kind of news from almost every oil and gas company that hedges physical barrels.

Paul Ausick
June 17, 2008

Boardwalk Fully Committed on New Pipeline (BWP, CHK)

Boardwalk Pipeline Partners LP (NYSE:BWP) announced that it has signed a 10-year binding agreement with Chesapeake Energy (NYSE:CHK) for natural gas transportation on Boardwalk's new Fayetteville Lateral pipeline. The pipeline is expected to begin operations in the third quarter and reach its phase-one capacity of 800 million cf/d during the first quarter of 2009. Full capacity of 1.3 billion cf/d is expected in 2010. Originally targeted at a capacity of 1.2 billion cf/d, the deal with Chesapeake will require additional compression facilities and further approval from the FERC.

Boardwalk stock dropped more than $3.00 last week after its follow-on offering of 10 million shares priced at $25.30. Boardwalk previously announced that it had fully committed its new Gulf Crossing pipeline at 1.4 billion cf/d. That pipeline is scheduled to be in full operation in 2011.

The company surely hopes that today's announcement gives the stock a little boost. EPS for the first quarter of 2008 was $0.60; average analyst estimates for the second quarter are $0.35 EPS. That seems a bit gloomy, given that the latest stock offering only increased outstanding shares by about 9%. So far today Boardwalk shares are up about 0.5% at $25.13 in the first ten minutes of trading.

Paul Ausick
June 16, 2008

Cramer's Oil & Gas Wildcatting Week (HK, REXX, BZP, RRC, RAME)

This week on CNBC's "MAD MONEY," Jim Cramer had another one of those "one pick per night" features.  This week's special feature wasn't just oil, it was wildcatting.  Yep, drill a hole in the ground and see what happens.  In his version of the wildcatting climate, it is now highly profitable because oil prices are incredibly high and the costs are easy to recoup.  Here are his picks in the sector chronologically, and the "gain" posted here is on the "day after move" rather than for the week:

• Monday... Petrohawk Energy Corp. (NYSE: HK) -4.1%
• Tuesday... Rex Energy Corp. (NASDAQ: REXX) +6.2%
• Wednesday... BPZ Resources, Inc. (NYSE: BZP) +7.4%
• Thursday... Range Resources Corp. (NYSE: RRC) -1.1%
• Friday... RAM Energy Resources, Inc. (NASDAQ: RAME) +10% (in after-hours trading on Friday after he touted it)

Enjoy your weekend, and if there used to be an oil well that was drilled dry or if there have been any oil discoveries within about 20 or 30 miles of your property it might be worth calling one of these companies......

Jon C. Ogg
June 13, 2008

CVR Partners Cancels Its Fertilizer IPO (CVI)

CVR Energy, Inc. (NYSE: CVI) announced Friday evening that the managing general partner of CVR Partners has decided to postpone the IPO of its CVR Partners indefinitely.

The company noted that its review of public offering alternatives for CVR Partners, the
managing general partner has determined that current MLP (master limited partnership) market conditions do not currently support a solid IPO.  This was aimed at maximizing the value of CVR's fertilizer business.

The company now believes maintaining the fertilizer business within the parent CVR Energy will offer a greater value for its shareholders.

We reviewed this one for our SPECIAL SITUATION NEWSLETTER and included it in our picks about two months ago as a "bonus issue."  Because it was still too close to the IPO date at the time, we did not create any formal recommendations as it was not able to be hedged with stock options at the time.  That report is now off of embargo as our first target for the main culprit of the report was hit, so here is the actual report that we sent to subscribers.

Jon C. Ogg
June 13, 2008

Implications of ExxonMobil Dumping Gas Stations (XOM, COP, CVX, VLO)

Reuters is reporting that ExxonMobil Corp. (NYSE:XOM) plans to sell the 1,400 retail outlets it owns and the 820 it operates over the next several years. The company doesn't want to fool around any more with this low-margin business. One analyst quoted in the Reuters story estimated that Exxon's profit margin from retail was 10%-15%, about a third of the company's margin from its production business.

In December 2006, ConocoPhillips (NYSE:COP) announced that it planned to divest 830 retail outlets it owned and operated. Since 2003, Chevron Corp. (NYSE:CVX) has sold about 3,300 retail outlets, mostly in Europe and Asia. The company still controls more than 15,000 outlets outside the US. Chevron owns/operates about 550 gas stations in the US.  Interestingly enough, this also comes at a time where Valero Energy Corp. (NYSE: VLO) has been acquiring more units and increasing its retail gas station footprint.

The point is that Exxon's announcement isn't particularly big news and will have virtually no impact on the company's continuing operations or cash flow. In fact, as Big Oil dumps retail operations, the companies further position themselves to put the squeeze on the hapless station owners because the oil companies do retain their wholesale distribution business. The wholesalers' interest in keeping gasoline prices affordable for consumers doesn't exist. That's no longer their problem.

And remember, retail sales of gasoline continue to fall as consumers drive less and hybrid and other technologies begin to gain traction in the market. The major oil companies want little part of the pressure that exists where the rubber meets the road.

Paul Ausick
June 13, 2008

Slapping Sense Into Market, BP Chair Says $250 Oil Is Hogwash

No sooner than the CEO of Russia-owned oil company Gazprom said oil would hit $250 a barrel next year, the head of BP called him criminally insane.

According to Reuters, Peter Sutherland, "the chairman of British oil major BP (BP) rejected as "apocalyptic" a prediction by the head of Russian gas giant Gazprom of oil prices soaring to $250 a barrel by the end of next year.

Sutherland also challenged his Russian counterpart to a duel.

The reasons that the head of BP gave for moderating oil prices made sense. A need for new investment in developing existing fields and more exploration should help offset demand.

Is it any wonder that most people liked Churchill more than Stalin?

Douglas A. McIntyre

Crude At $250: The Mad Hatter Seizes The Oil Prediction Racket

"Alice, it would be nice if something made sense for a change"--Mad Hatter, in "Alice In Wonderland"

Overnight, the head of Russia's state-owned oil company, Gazprom, said that crude would hit $250 next year. He does not want to be bested by rising predictions from investment bankers and agencies in the US. Alexi Miller, the company CEO did say “Today we are witnessing a very great change for hydrocarbons. The level is very high and we think it [the price of oil] will reach $250 a barrel," according to the FT.

Alexi may have gotten a bit of support for his opinion. China said the its oil imports were up 13% for the first five months of the year. In May, the number was 25% or 3.8 million barrels a day.

China's exports rose 28% last month. The central government knows that oil drives the infrastructure build-out and transportation costs that make the big machine run. In all likelihood, China's claims that it will raise fuel prices are thin. It cannot afford to wring its own neck.

The Gazprom figure may be wishful thinking. Russia would like to get $250 a barrel for all of its oil. Alexi may be wrong, but he may not be wrong by much.

Douglas A. McIntyre

Boardwalk Pipeline Hit On Secondary (BWP)

Boardwalk Pipeline Partners, LP (NYSE: BWP) has priced its planned and proposed secondary offering of 10,000,000 units representing limited partner interests at a price of $25.30 per unit. 

For an offering of this size it has a huge underwriting group.  Citigroup, Lehman Brothers, Morgan Stanley and UBS were listed as the joint book-running managers for the offering. The senior co-manager is Wachovia Securities and junior co-managers are listed as Credit Suisse, Morgan Keegan, and RBC Capital Markets.

Boardwalk said it will receive net proceeds after expenses of approximately $248.5 million, including the general partner's proportionate capital contribution of $5.2 million.  Boardwalk also granted underwriters an over-allotment option to purchase up to an additional 1,500,000 common units.

The net proceeds raised from this offering will be used to fund a portion of costs of its expansion projects, either directly, or indirectly by increasing its borrowing capacity available for such projects through debt repayment under its revolving credit facility.

Shares closed down almost 6% today at $25.30, so the discounting looks like it came from today's selling pressure.  Shares fell by about 2% to $24.72 in after-hours trading.  Its 52-week trading range is $21.24 to $37.39.  Just five days ago the units for this LP were north of $28.00.

You can join our open email distribution list to hear about other secondary offerings, special financings, IPO's, restructurings, and other special situations.

Jon C. Ogg
June 10, 2008

Russia's Gazprom Sees Oil At $250, Refuses To Be Topped By US Analysts

The Russians will not take a back seat to anyone. That includes oil analysts from Goldman, Lehman, and Merrill Lynch who say oil may reach $200. They will not be bested by the International Energy Agency which has said oil will remain near record highs until demand drops sharply.

According to the FT, the CEO of Gazprom, the oil company controlled by the Russian government said : “Today we are witnessing a very great change for hydrocarbons. The level is very high and we think it [the price of oil] will reach $250 a barrel.”

If he is right, Russia may end up with the largest sovereign wealth fund in the world.

Douglas A. McIntyre